When you are expecting a child, much of your time is spent thinking about baby names, anticipating what your life will look like and how you will manage once your baby arrives.
From a household budget standpoint, you may have already been considering some of the extra expenses you’ll take on – from diapers to equipment to food. But what you may not be considering is how this life event could alter your household income if you plan to take maternity leave. With an increase in expenses and a potential pullback in your income, you are well-advised to do a little forward financial thinking ahead of your parental and/or maternity leave.
“When your income reduces and your expenses increase, it can be tempting to turn to debt to fund the loss of your income,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.
“Make sure you’re well aware of all the support you may be able to receive while you’re on maternity leave, including additional government benefits or top up payments from your employer.”
Do more with less
Before you head off on leave, live as though your income has been reduced for a couple of months. It will give you a chance to adjust to your new normal for the time that you’re off on leave. It will also give you a chance to identify if there are any areas that need improvement in your budget, before you’re sleep deprived and knee deep in diapers.
You can also accumulate the money you don’t spend during this exercise to pad up your savings to use during your leave, reducing the need for debt.
What am I entitled to?
Moms get 15 weeks of Employment Insurance (EI). Parents are allowed to use another 35 weeks however they like (split the time, all mom or all dad). Your income during this time will depend on how much your salary is. You get 55 percent of your weekly earnings, up to a maximum of $537 week. Some employers top your income up for all or a portion of your leave of varying amounts.
Budget long term
Let’s say after your time off, you decide that you don’t want to return to work. If your employer has been offering you additional payments on top of your EI, you may be required to pay back what they paid you if you’re not coming back. There can also be income tax implications as well.
Investigate this beforehand, and budget your savings accordingly.
Space your spending
You can mitigate the impact that extra baby spending will take on your monthly budget by spreading out the expenses. Don’t go out and buy all of the equipment and clothing at once. Get what you need for the first few months and then add a piece here and there along the way as the baby grows.
You can also buy and sell your baby clothes on consignment as you move up sizes, which will reduce that cost significantly.
Becoming a parent doesn’t have to mean taking on more debt. Planning ahead is your best bet to keeping your debt under control. Call one of our trained credit counsellors or click here for our online debt analysis.